Photo: RNZ / Dom Thomas
Outgoing Climate Change Commission chairperson Rod Carr says the Emissions Trading Scheme "will fail" without "pretty radical reform".
The Emissions Trading Scheme or ETS is the government's major tool for lowering the planet-heating gases that are contributing to heating, droughts and extreme floods and storms around the globe.
The government's fourth and final auction of carbon credits under the ETS for this year sold just over 4 million tonnes of pollution rights today, earning the government $258 million.
But over 7 million tonnes did not sell and will go on the scrapheap, ending a slow year with weak demand.
Two of this year's auctions failed to get a single bid.
Independent watchdogs including the climate commission have told the government major reforms will be needed if its wants the Emissions Trading Scheme to deliver serious cuts to New Zealand's greenhouse gas emissions.
In one of his final interviews before his five-year term ends this weekend, outgoing commission chairperson Rod Carr told RNZ's Nine to Noon that without "fairly radical reform," the ETS would fail.
Carbon dioxide producers such as petrol importers, oil and gas producers and coal miners have to buy and surrender enough credits to cover their products' carbon dioxide emissions, under the ETS.
They can buy them from the government at an auction for at least $64 a tonne or buy them privately from forestry companies (whose trees suck in carbon) or anyone else with surplus credits to sell.
Thanks to a plentiful stockpile of credits which have been already issued by the government, demand has been muted to buy any more at government auctions for two years now. That depresses the price of releasing a tonne of carbon, which lowers any financial incentive for companies to cut emissions.
"The commission is pretty clearly on record in saying that at the moment, given the number of units that are in the bank and that have been issued previously, and given the ability to plant up to nearly two million hectares of New Zealand pastoral land in carbon-capturing pinus radiata at less than $50 a tonne, given those things, the Emissions Trading Scheme is not a capped scheme in any budget period and as a tool to deliver emissions budgets will fail, is not fit for purpose," Carr told Nine to Noon yesterday.
"There are too many units on issue, too many units which can be issued and the obligations of emitters too few, so that unless there is pretty radical reform, the ETS will not play a part in signalling and rewarding emissions-reducing technology take up."
All unsold credits from 2024 will now be cancelled, wiping the slate clean ready for next year's auctions.
Not since 2022 has an auction sold out.
Independent watchdogs have told the government it is taking a gamble by relying on the ETS in its current form as its main tool for tackling climate change.
The scheme has carveouts for high-emitting exporters like Methanex and Rio Tinto, which receive mostly free credits direct from the Government, and there are no limits on how many tonnes of credits from tree planting can flow into the scheme.
Carr has said that as long as planting pine was cheaper than cutting emissions, it would put a lid on any need for companies to reduce their greenhouse gases.
Earlier this year, Climate Change Minister Simon Watts acted on the commission's advice and cut the number of tonnes for sale at future Government auctions.
The government has also announced it will limit farm to forestry conversions.
The government's full plan for cutting emissions from 2025 onwards is expected this month.
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